Inventory can be damaged in many ways and at some point every business that sells products has to deal with damaged goods. One of the benefits of using accounting inventory software is that you are able to draw on your existing stock data to easily calculate the value of the damage. Should you try to replace those items or write them off to deduct their loss from your taxable income, that data will come in handy. Whether or not you use an accounting inventory software already, here’s how you can deal with inventory loss caused by stock damage.

Write a Comprehensive Report of the Damage

Before you make any attempt to recoup or minimize your loses it’s crucial that you document your damaged inventory as soon as you find it. Include in your report an accurate description of the damage together with visual proof (images and/or video), the cause of the damage (if known), and the time and date when it occurred.

If none of your employees have witnessed the incident that caused the damage, you will want to draw on existing warehouse/inventory logs to approximate the time of the damage. If you use an accounting inventory software, you could drawn on the data it provides as well.

Figure Out the Numbers

Next you will need to calculate what you paid for the damaged inventory. At this point, having a small business product inventory software can come in handy – if you can’t find the invoice for that particular stock, you can deduce the value by calculating the average cost you paid for similar items in your most recent order.

You also have to calculate the total worth of the damaged inventory (new realizable value). Using existing records, you can predict the price at which you have sold the items and subtract from the original cost the following: shipping costs, handling costs, and advertising costs.

Replace Damaged Stock Or Minimizing Loses

Once you know where you stand, you have essentially two options: either replace the stock, or deduct the new realizable value you calculated above from your taxes. Replacement is of course preferable, but in some cases the cost of replacing inventory, which can vary from vendor to vendor, may be too high, especially if a large portion of your stock has been damaged.

In that case, contacting the IRS, explaining to them the situation, and offering them your comprehensive report could help you recoup the net realizable value and minimize your loses. Alternatively, you may write off the lower of replacement cost or market floor. Again, using an accounting inventory software makes these calculations easier.

A Word of Caution

In the end don’t forget that preventing inventory damage is much better than dealing with it. Enforce the right inventory handling and storage practices and choose reliable suppliers, and you will be able to keep inventory loss to a minimum. Also, a cloud inventory management software for small business such as DataQlick can also help, by helping you maintain optimal inventory levels and avoiding overstock, which all too often leads to inventory deterioration and damage.